IT-ITeS sectors will contribute $115 billion to the economy from allied sectors as well. This emerging sector is expected to create about 11 million jobs over the next three years. By 2010, the sector is expected to generate exports worth $60-75 billion. IT sectors has done pretty well in 2007 despite the rupee shock and the subprime crisis in the US.
| Positive factors | |
Outsourcing: India is a powerhouse catering to almost all the leading global companies of the world. IBM, Cisco, Yahoo! Amazon and Oracle all outsource from India. India gives complete solutions supported by its technological ability, quality, flexibility, and cost effectiveness; time to market and in turn the competitive edge. Most of the services provided by our IT major are software, web design, logo design, Flash design, search engine optimisation services etc.
| Broadening their portfolio | |
Indian software companies are consistently broadening their portfolio of offerings and moving fast up the value chain. Given that traditional services, such as application development and maintenance (ADM), are getting commoditised, it is imperative for these companies to move higher up the value chain into areas like consulting, package implementation and systems integration. Not only will this help Indian companies get higher billing rates from their clients, it will also give them an opportunity to work closely with the top managements of client companies.
Other positives
Among other positive factors for the Indian software industry, the major ones are large availability of talented manpower, cost advantage and geographical advantages (time-zone advantages). The companies involved in IT outsourcing in India provide high quality work, meeting international standards and complying with the ISO & SEI-CMM standards. Three out of every four SEI-CMM 5 companies worldwide are located in India.
| Negatives | |
IT companies are facing the heat of depreciating dollar. The value of the rupee against the US dollar has increased by over 15 per cent in the past seven months forcing the companies to rethink their strategies. Most of the IT companies receive their revenue as dollars, because of this the margins have come down. So many IT companies have decided to cut down their costs to save margins. India's high growth rate has led to problems with inadequate public infrastructure, salary inflation and high attrition rates.
Dependence on US markets: Out of India's total IT exports, US market accounts for around 60%. Such a high level of dependence on a geographical location implies high risk for the Indian IT sector. The US economy is facing a crisis and hence outsourcing to low-cost countries like India make take a hit. Also, opposition to outsourcing of jobs to India also pose worries to Indian companies.
More competitors: Despite remaining the top spot for IT hub, India is facing threat from China, Ireland, Singapore and Malaysia. Demand for experienced professionals is high which leads to attrition rate of about 40%. The other key factors posing as threat are poor infrastructure and rising wages. As the attrition rate is high, employees are paid high in order to retain talent. So ultimately the margins get affected. China is rising as an attractive location.
Higher attrition rates: Attrition is not unique to India. The attrition rates in the US and UK are much higher than in our country. It is new to India, but our businesses are designed around attrition. In fact, the attrition rate is pretty high at the management level. One way of dealing with attrition at the management level is to empower managers to take decisions. At the agent level, departments have to be structured to provide fulfiling work conditions.
Tax model: Exemptions for export-oriented enterprises such as software outsourcing firms have been cut. IT companies have to pay Minimum Alternative Tax for their exports. The dividend distribution tax has been raised from 12.5% to 15%.
| Performance of Top IT companies (Last 5 years) | |
| Net Profit | 2007 | 2006 | 2005 | 2004 | 2003 |
| TCS | 3757.29 | 2716.87 | 1831.42 | 1637 | 1176 |
| Infosys | 3783 | 2479 | 1864 | 1243.63 | 954.77 |
| Wipro | 856 | 657.5 | 421.4 | 411.7 | 230.2 |
| Satyam Computers | 1131 | 894 | 712 | 555.79 | 459.88 |
| HCL Technologies | 1,101.82 | 638.39 | 329.27 | 325.72 | 312.47 |
As per the above report the top IT companies has posted a wonderful net profit for the particular year ends. Net profit has subsequently raised year on year. The companies has shown a great growth.
| IT Index performance during 2007 | |
The stocks of the IT companies have not performed to their best as a whole. IT index is highly volatile and sloping downwards from January 2007 to December 20'07.
Outlook
The Indian IT sector is expected to show robust growth in 2008. From an economic perspective however, the overall growth outlook is positive, with the economy still growing at a strong rate and annual GDP growth expected between 7% and 8%. However, some risks pertain to this scenario including uncertainty over the future evolution of the tax regime governing computer manufacturers, importers and rupee appreciation could cost for IT sector. IT sector face moderate threat through resource crunch, weakening dollar, sub-prime crisis, recession fears in the US.
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